CAMBODIA – THE NEW EMERGING MARKET..?

January 2012

The last time I spoke with my friend Doug Clayton our attention was focused on the unfolding and rapidly rising market in Myanmar, a country Doug is heading to shortly and one I’ll be returning to later this year with some friends. I caught up with Doug fresh off a plane from Haiti, back home in Cambodia.

Doug has lived in Asia for the past 26 years, in 5 different countries and moved from country to country as each has transitioned, or been transitioning, allowing him to pick the low-hanging fruit.
He began in Korea in 1983, then Hong Kong in 1986, Thailand in 1989, Singapore in 2001 and moved to Cambodia in 2007.

Doug has had the good fortune of visiting nearly every Asian country during the 1980’s and 90’s. This allowed him a bird’s eye view of countries in this region emerging and changing, which provided him with critical reference points to work with, something that many foreigners moving into Asia lack.

With that intro now behind us, I have had our most recent conversation transcribed below for your enjoyment. I’m sure you’ll find Doug’s thoughts enlightening… l always do.

Chris: So Doug, why Cambodia?

Doug: Nearly five years ago I saw that Cambodia was a country that was in my view going to go from being just another “frontier market,” to being an actual “emerging market,” as so many other Southeast Asian countries have done.

Chris: Right, keen observation.

Doug: So I quit my job, I moved my family to Cambodia; I rounded up some friends and set up Leopard capital to create the first investment fund for Cambodia.

Investors eye resourceful Burma

Viewpoint by Douglas Clayton Investor, January 2012

Frontier investors are eyeing Burma as its newly elected government moves to bury the country's pariah status and rejoin the global economy.

President Thein Sein has blunted human rights criticism by releasing political prisoners, relaxing press censorship, and drawing dissident Aung San Suu Kyi into the political process.

Mr Thein seems determined to lead Burma through a comprehensive program of political and economic reform and improved relations with the West.

The sudden charm offensive has caught the world by surprise, and drew the first visit to Burma by a US Secretary of State in more than 50 years.

Foreign investors toting briefcases are starting to replace backpackers on flights to Yangon.

Economic catch up

What is attracting them is easy to grasp.

When Burma gained independence in 1948, it was one of Asia's wealthiest nations and a significant commodities supplier.

Today it stands among Asia's poorest, thin and threadbare after six decades of economic mismanagement, political repression and international isolation.

But Burma's new leaders seem weary of penury and of becoming an economic vassal state of neighbouring China.

An epic economic catch up marathon seems set to start, and could morph into a sprint if Burma creates the right investment framework.

Asian investors will lead the race into Burma, trailed by global multi-nationals once the West's economic sanctions come off.

Realizing Cambodia’s Investment Potential: KRW Advisor interviews Douglas Clayton, CEO of Leopard Capital

Interview by Keith W. Rabin, June 2011

Thank you Doug for speaking with us today. Before we begin, can you tell us about your background and how you came to form Leopard Capital?

Over the past 25 years that I’ve been investing in Asia, I‘ve seen numerous countries transform from avoided frontiers into popular emerging markets. I set up Leopard Capital in 2007 to invest in the next wave of pre-emerging markets. We selected our first target, Cambodia in 2007 and went out and launched a fund there while everyone was focused on the global financial crisis.

Cambodia is far off the radar screens of most investors, even those that focus on emerging and frontier markets. Can you tell us about Cambodia as an investment destination?

Cambodia is a remarkable country, a poster child of post-conflict healing. The economy is still small but will grow multi-fold over the next few decades.

Cambodia begins to attract money

June 2011

Cambodia, once regarded as a spill-over investment from Vietnam, is showing signs of standing on its own feet as frontier funds start to produce strong returns.

Frontier investors such as Leopard Capital – a private equity fund which launched a potential $100m Cambodia-focused fund in 2008 only to close with $34m – is now finding renewed interest in the country, holding the door open as other regional funds begin to sense an opportunity.

Vietnam’s largest asset manager, Vinacapital Investment Management, in January announced it would be expanding into Cambodia with a pledge to invest $100m, launching a dedicated fund targeting real estate, infrastructure, hospitality and agriculture investments.

“On the face of it, it is looking like a great opportunity,” says Kathleen Ng, managing director of the Centre for Asia Private Equity Research.

“There’s huge interest in directing funds to south and south east Asia – Sri Lanka, Laos and Cambodia – and we are seeing funds, from Vietnam in particular, beginning to regionalise.

“There’s an emerging sense of opportunity with some funds having a lot of luck in raising funds. Leopard Capital, in particular, was oversubscribed last year,” she says.

Travel Notes: Cuba Prepares for Perestroika

By Douglas Clayton, March 2011

Dividing Old Havana from Chinatown is Cuba's Capitolio Nacional, a monumental edifice with a fateful past. El Capitolio was conceived during the "Roaring Twenties", when the island led the world in sugar exports and the future seemed blue-sky. President Gerardo Machado, who dreamed of turning Cuba into the Switzerland of the Americas, decided that his four million countrymen needed a domed Capitol building even taller and more ornate than the one he toured in Washington. Cuba's Congress dutifully poured 3% of the country's GDP into their new home (akin to the US Congress spending $42 billion for a new office today, but let's not give them any ideas...) It took 5,000 skilled Cuban laborers just three years to complete El Capitolio, which featured gilt ceilings, a giant diamond embedded into the pristine marble floor, and the world's third-largest indoor statue. However, the showy project couldn't have been more poorly timed: while the building rose, America's stock market crashed, the Great Depression unfolded, and the Hawley-Smoot tariffs crushed Cuban sugar prices by 74%. As El Capitolio's ribbon was cut in 1932 Cuba's economy lay in tatters, with two-thirds of its citizens thrown into destitution. Machado was forced out of office, and his dream building would perform Congressional service for only 27 years before Fidel Castro's revolutionaries swept into Havana and opted for more austere premises.

Travel Notes: Myanmar Revisited

By Douglas Clayton, August 2010

Over dinner, one of our European investors tells me he's building his retirement home in Myanmar, of all places. "You should come see it", he says, and goes on to describe a housing estate so that sounds nothing like the Myanmar I remember. It doesn't take much to convince me to join him there for a look.

I fell in love with Myanmar on my first visit there in the late 1980s - a simpler time when Yangon was called Rangoon, Myanmar was Burma, and mainland Asia was all an irrelevant frontier market to most foreign investors. Burma's exotic countryside seemed like a living museum, a place to see how people lived before machines were made, when energy was delivered by hand and hoof. Misty images linger of Inle Lake's floating villages, the long rickety teakwood bridge near Mandalay, the storybook English cottages around Maymyo hill station, and the sight of hundreds of ancient pagodas stretching out under Bagan's shimmering sunset. On a few subsequent visits it felt like not much had changed in Myanmar, as if it was content to remain a spectator to the Asian Miracle unfolding around it.

Travel Notes: Sri Lanka's Liberated East

By Douglas Clayton, May 2010

We're on a marathon investment inspection tour of the South and East coasts of Sri Lanka. Locals like to say the East has the island's best beaches, natural harbor, fishing, farmland etc. so it's time to put such claims to the eyeball test. The East also provides a preview of what reconstruction programs may lay ahead for the North, since the East was liberated from the separatist LTTE Tigers a few years earlier. On the way East, we also want to tour the South which the government has made another priority area for investment.

Leaving Colombo, our first stop is in Galle, an intact port town from the wooden ship era. We enjoy a sunset stroll along the Dutch fort's elevated waterfront ramparts, from which one can soak up much of Old Galle's historic architecture.A few of the nicer buildings have already been spruced up and it's not hard to imagine Galle becoming renowned as an atmospheric tourist hangout.

Travel Notes: Luang Prabang

By Douglas Clayton, January 2010

We have journeyed to the Land of a Million Elephants, also known as Laos, to visit the old royal town of Luang Prabang. Luang Prabang is one of those places where even before the plane lands you already know you’re going to like it. The scenery as you descend is dramatic, with rugged, forested mountain ridges studded with gold and white pagodas, bisected below by winding mud-brown rivers. The airport turns out to be delightfully miniature and antiquated, and the immigration officers seem overwhelmed with the task of processing a small planeload of arrivals. Slow down folks, you’re in Laos.

A short drive to town brings you into the Southeast Asia of yesteryear; an architectural time capsule radiating with ambiance. The sprawling collection of colonial-era buildings led UNESCO to declare Luang Prabang a World Heritage Town in 1995. The New York Times named Luang Prabang the world’s top place to visit in 2008, and tourism dutifully spiked to 600,000 arrivals

Travel Notes: Kep

By Douglas Clayton, November 2009

This weekend I’m with my family in Kep, 180 kilometers southwest of Phnom Penh, where the Cambodian coastline butts up against Vietnam. One of Cambodia’s time-warp towns, Kep was established as a French resort a century ago and until the 1970s served as the getaway of choice for Cambodia’s rich and famous when it was known as Kep-sur-Mer. Sadly the swanky villas of that era became war booty in the 1980s, with everything reusable, from the floor tiles to the roof tiles, hacked out and hauled off in departing Vietnam Army trucks, or so the old-timers say. Of most just a few walls remain but even then you can usually spot the mod styling of the “Austin Powers” era. Fortunately Kep’s more natural charms remained intact; its mountain slopes still sport their splendid jungle canopy unlike the hills of rival Sihanoukville.

Travel Notes: Kampong Thom

By Douglas Clayton, October 2009

It’s a public holiday and I’m making a day trip to rural Kampong Thom (“KT”) province with some Cambodian friends. It seems all of Phnom Penh is heading to the countryside for the Hungry Ghost Festival, and our driver suggests taking a different route which turns out to be equally jammed. Along the way we pass two long-span bridges being built across the Tonle Sap River; further signs of the game-changing transformation of Cambodia’s infrastructure. But for now our route involves an old-fashioned ferry crossing, preceded by an hour’s wait behind a swarm of bulky Lexus SUVs, the national car of the Cambodian elite.

KT sits 160 kilometers northwest of Phnom Penh, on the way to Angkor Wat. In Cambodia terms it’s a large but lightly populated province, with a half million farmers scattered across 13,000 square kilometers. KT borders the north side of the great Tonle Sap Lake which floods into the province every year, creating some of the nation’s richest topsoil. Much of the countryside we pass is submerged now.

Travel Notes: Koh Tonsay

By Douglas Clayton, September 2009

Since few outsiders have been to them it’s easy to forget that Cambodia has over 60 pristine islands dotting its coastline. I’ve been curious to investigate the Cambodian answer to Robinson Crusoe question: how do people make a living on an undeveloped tropical island? When I hear that locals are farming seaweed on Koh Tonsay (Rabbit Island) I decide to go check it out. I bring along our trusty driver Sam, and at the small pier in Kep we negotiate a boatman to take us out for the day for $20. He leads us to a “long-tail” boat, which I notice lacks any life preservers or radio, but it does have a red police light mounted on a frame which I guess makes it safe. The boat slices through the waves with surprising stability, and after a 25 minute ride we are jumping off at Koh Tonsay.

Travel Notes: Battambang

By Douglas Clayton, August 2009

To take the pulse of Cambodia’s heartland, Tony, Sarah and I head out to Battambang, Cambodia’s second biggest city. The drive out takes four hours and traffic lightens once we clear Phnom Penh’s sprawl. It’s rainy season now, so the rice fields lining the highway are a dazzling green. As we pass through the provincial capitals of Kampong Chhnang and Pursat, I feel the urge to come explore these towns another weekend.

But our destination today is Battambang, a Northwestern province with an interesting past. Cambodian history is a tale of flip-flopping borders, and Battambang was ruled by Thailand as recently as 55 years ago. After France insisted it be returned to Cambodia, Battambang managed to hold out longer than any other city against Khmer Rouge takeover in 1975.

Travel Notes: Cambodia’s Southern Seaboard

By Douglas Clayton, June 2009

One of Cambodia’s future growth drivers will be the development of its 440 km virgin coastline. We recently visited Sihanoukville to get an update on the opportunities there; here are our travel notes.

After the three hour afternoon drive from Phnom Penh we head directly to our favorite local restaurant to watch the sun set over the water while feasting on Kampot pepper crabs and listening to the mesmerizing waves. Tiny fishing craft float in to unload their catches; one boat heads directly to our restaurant for just-in-time delivery service. Offshore two big ships are visible, the semi-retired cruise ship “Jupiter” which reportedly will one day ferry tourists to Vietnam’s nearby Phu Quoc Island, and a massive sand carrier anchored on the horizon. Sand dredging has become Cambodia’s latest extraction bonanza, encouraged by unlimited-quantity buy orders from affluent Singapore which can only expand its island territory by filling in the sea.

Update from Cambodia: Asia’s Sanctuary of Opportunity

By Douglas Clayton, Published in Dr. Marc Faber's Gloom Boom & Doom Report, January 2008

As deleveraging decimates the world economy, the least damaged are the least developed countries like Cambodia that were left off the guest list of the global liquidity party. Cambodia now stands out by not standing on the brink of financial ruin or a looming “lost decade”. The government’s finances remain sound with just US$4 billion debt, mostly long-term concessionary loans from donors without rollover risk. Private sector borrowings reached only 20% of GDP last year; this is still a cash economy. The small, under-geared banking system continues to function normally and expects record profits this year. Phnom Penh’s feared building boom bubble was artfully pinpricked before most planned projects broke ground, and Cambodia must be one of very few countries now with an undersupply of prime office and retail space.